Chapter Overview of Financial Terminology for Homeowners Beginning a Rebuild or Repair
When starting a home rebuild or repair, homeowners will encounter various financial terms across insurance, banking, construction, Personal Property, liability, and tax contexts. Understanding these terms is essential for making informed decisions. That said, this particular chapter should act a bit more as a reference guide, rather than a riveting summer novel and should serve as a primer for the glossaries which cover thousands of terms.
We’ve sorted a number of the most common terms into a handful of articles to make them easy to reference on a move-forward basis including Insurance, Banking, Construction, Personal Property, Legal & Medical and Taxes. To get started, the following gives a taste of what’s to follow but certainly open the appropriate articles for more detail.
Insurance Terms
Coverage
What It Is: The amount of protection provided by an insurance Policy, detailing what is covered (e.g., dwelling, personal property) and the limits for each type.
Relevance: Ensures that you have enough protection to rebuild or repair your home and replace personal property.
Premiums
What It Is: The amount you pay, typically monthly or annually, to keep your insurance policy active.
Relevance: A key cost factor in maintaining insurance coverage during and after a rebuild.
Deductibles
What It Is: The amount you must pay out of pocket before your insurance company pays a Claim.
Relevance: Higher deductibles can lower premiums, but you’ll pay more upfront if a claim is made.
Banking Terms Related to Mortgages and Loans
Mortgage
What It Is: A loan used to purchase a home, where the property itself serves as collateral.
Relevance: If you have a mortgage, your lender may require you to maintain certain insurance coverages during a rebuild.
Loan-to-Value Ratio (LTV)
What It Is: The ratio of your loan amount to the appraised value of your property.
Relevance: Affects your ability to get additional financing or Refinancing options during a rebuild.
Equity
What It Is: The difference between your home’s current market value and the amount you still owe on your mortgage.
Relevance: Equity can be used to secure loans for rebuilding or repairs.
Construction Project Terms
Contract Terms
What It Is: The specific conditions, clauses, and agreements outlined in a construction contract between you and a Contractor.
Relevance: Defines the Scope of Work, timelines, payment schedules, and responsibilities, ensuring clarity and protection for both parties.
Change Order
What It Is: A document that outlines changes to the original construction contract, including cost adjustments and project modifications.
Relevance: Helps manage and document any changes during the rebuild process.
Personal Property Terms
Depreciation
What It Is: The reduction in value of an item over time due to wear and tear or obsolescence.
Relevance: Affects how much your insurance will pay for lost or damaged items based on their current, not original, value.
Actual Cash Value (ACV)
What It Is: The value of your property after depreciation has been deducted from its replacement cost.
Relevance: ACV is what your insurance might pay if you have a standard policy, resulting in lower payouts for older items.
Replacement Cost Value (RCV)
What It Is: The cost to replace damaged or destroyed property with new items of similar kind and quality, without deducting depreciation.
Relevance: Ensures full reimbursement for replacing lost items, provided your policy includes RCV coverage.
Liability & Medical Terms
Liability
What It Is: Legal responsibility for injuries or damages you may cause to others, covered under your Homeowners Insurance.
Relevance: Important during a rebuild to protect against claims if someone is injured on your property.
Retainers
What It Is: A sum of money paid upfront to secure the services of a contractor, lawyer, or other professional.
Relevance: Helps ensure that professionals are available when needed and that you’re prioritized in their schedule.
Tax Terms
Deductions
What It Is: Expenses that can be subtracted from your taxable income, reducing the amount of tax you owe.
Relevance: Rebuild-related costs, such as mortgage interest and some insurance payments, may be Deductible.
Appraisals
What It Is: An Assessment of your property’s value by a certified professional, often required for loans, insurance, or tax purposes.
Relevance: Crucial for determining the value of your home before and after rebuilding, affecting insurance and taxes.
Trusts
What It Is: A legal arrangement where a Trustee holds and manages property on behalf of beneficiaries.
Relevance: Useful for Estate planning and protecting your property during the rebuilding process, ensuring it’s managed according to your wishes.
Learn More
As you can probably see, this is just the tip of the iceberg but as always we are here to help. Let’s get going…